Saturday, July 16, 2016

Questions & Answers on the Overseas NGO Law

I'm back from a month-long trip that took me around the world starting from Hong Kong to Morocco (vacationing with my wife and daughter who was studying abroad there), then to Washington, D.C. (work), then to upstate New York (family reunion), then to New York City (more work), and finally back to Hong Kong where it was good to get back into my old routine. Traveling around the world was fun but tiring.

Over the last few months, I’ve received some questions in response to my postings and talks on the Overseas NGO Law and apologize for not responding to them earlier. I decided to post my answers to those questions here so that more people could benefit from this Q&A. As always, feel free to post questions and I’ll try to respond as quickly as I can.

Q1: Regarding the foreign NGO law, will the Ministry of Public Security become sympathetic towards NGOs or maintain a hard line? How does it perceive its new role? 
A1: I don't think we should assume a particular attitude from MPS towards NGOs. I think the law presents an opportunity for NGOs to help the MPS better understand what they do  in China. Of course, MPS has a security mindset just because of what it is, but they also know that law-abiding NGOs are now going to be their clients, so as long as foreign NGOs can show they are law abiding and maintain open communication channels with MPS, then there's room for them to work with the MPS and them to better understand the contribution NGOs are making to China’s development and thereby soften the MPS’s security mindset. We also have to keep in mind that provincial and local public security will also be involved, and as we all know local bureaucrats' attitudes towards foreigners and foreign organizations can vary quite significantly.

Q2: First of all, it is clear that the recent law applies only to offshore non-profit NGOs. This naturally leads to a definitional issue. I assume if a Chinese citizen establishes a non-profit in China, then this law would not apply, correct? Assuming that is correct, what regime would apply?

If a Chinese citizen establishes a non-profit NGO offshore, does the recently passed law apply to its activities in China? I assume the answer is yes.

Can foreigners establish a non-profit in China? If yes, would the recently passed law apply to them?

Does source of funding determine onshore/offshore status? In other words, if a Chinese citizen establishes a non-profit onshore with seed funding from overseas, is this an onshore or an offshore NGO. What about ongoing, operational funding?

A2: Yes the Overseas NGO Law applies only to offshore non-profit NGOs. If a Chinese citizen establishes a nonprofit in China then the recently passed Charity Law (see the FAQs in this blog for that law) will apply as will relevant regulations for registration and management of social organizations that are currently under revision.

The Overseas NGO Law will, however, apply to a Chinese nonprofit's work if it is collaborating with or receiving funding from an overseas nonprofit (e.g. a Chinese partner of that nonprofit). It doesn't matter if that funding is seed funding or continuous funding. Both would most likely count as a "temporary activity".

In Article 53 of the law, there does appear to be an exemption for education exchanges between schools, hospitals, research institutes and the like, but it’s unclear if an exchange or relationship between a U.S. university and a Chinese nonprofit would qualify for this exemption. We're going to need more guidance on this area from the Chinese authorities when they draft the implementing regulations, and need to know what relevant national provisions the authorities have in mind in Article 53.

The question on whether foreigners can establish Chinese nonprofits is an interesting one. The Overseas NGO Law only allows foreign NGOs to register a representative office or carry out “temporary activities”. Registering a Chinese nonprofit does not appear to fit into either of these two categories. In the second draft of the law, there were articles stating that foreign nonprofits could “co-found” a Chinese nonprofit, but those articles were taken out. But I wouldn’t exclude the possibility of foreigners using other means to register a Chinese nonprofit.

Some foreigners have managed to register domestic nonprofits in the past, presumably with the help of Chinese partners. The Overseas NGO Law would presumably not apply to these nonprofits which were founded before the Law was passed. The Charity Law would apply and so would several regulations for registering domestic nonprofits (social organizations) that are currently being revised.

Q3: Would this law prohibit Chinese companies from paying membership fees or dues to a global trade body or federation, that is headquartered outside China?

A3: Interesting question. I don’t think so. Article 28 of the Overseas NGO Law state that “representative offices of an overseas NGO and overseas NGOs conducting temporary activities must not openly recruit members within China, unless otherwise regulated for by the State Council.” The literal Chinese translation for “openly recruit members” is “developing its membership”. What that actually means is open to interpretation. It could mean that overseas NGOs are not allowed to recruit members through public channels, but maybe recruitment through private channels would be allowed. In any case, if the Chinese company is already a member of that trade body or federation, then there’s nothing in the Law prohibiting it from paying membership fees. According to Article 21 of the Law, overseas NGOs are not allowed to conduct fundraising activities in China, but there is nothing that prohibits overseas NGOs from accepting donations or fees.

Q4: Many foreign NGOs that focus on China are based in Hong Kong. How will their access to China change, if at all, due to the newly enacted legislation and troubling issues between Hong Kong and mainland China?

A4: First of all, all foreign NGOs based in Hong Kong, including Hong Kong NGOs, are covered under the Overseas NGO Law which applies to all NGOs registered outside of mainland China.

Second, It is true that the worsening relations between Hong Kong and Beijing have made it more difficult for Hong Kong-based NGOs, particularly after the Occupy Central protests in the fall of 2014. But Hong Kong still enjoys a number of advantages for foreign NGOs, compared with being based in other countries or in China. Foreign NGOs based in Hong Kong have the geographic proximity to the mainland, can draw from a large Chinese-speaking population staff when hiring staff, and have access to world-class universities, companies, media outlets and NGOs with China expertise and experience. In addition, foreign NGOs enjoy the benefits of Hong Kong's open society and a legal system that remains professional, independent and transparent even in the face of growing encroachment by mainland Chinese authorities. With the passage of the Law, I can see some foreign NGOs with offices in China finding it more attractive to relocate to Hong Kong. If they wanted to stay in China, they would have to register a representative office which would require finding an official sponsor. If the foreign NGO wasn't able to find a sponsor, then they might consider setting up an office in Hong Kong and run their "temporary activities" in China from Hong Kong given that the requirements for carrying out "temporary activities" are easier to meet than the requirements for registering a representative office. Hong Kong also has a regulatory structure that makes it easy for organizations to register a company. In fact, many foreign and local NGOs registered in Hong Kong are registered as limited liability companies. Some of these companies have charitable status, but others do not. Setting up a for-profit company that does business in China on a service-for-fee basis – a social enterprise model if you will – may be one way to work in China that would not come under the scope of this Law.

Q5: One of my activities in Brazil is to work on government relations. Most of the times I am lobbying for Chinese firms' interests in Brazil. In this context I ended up knowing a lot of people working with government relations around the world and a question came to me on whether it would be possible for a foreign firm (in the pharmaceutical sector) to support Chinese associations of doctors and patients with technical training. The long term goal of the company is to be known by such associations, as they are a global company and support this kind of activity in different countries. I already gave the pharmaceutical company the link to your blog and your FAQs on the new Charity Law and INGOs. However, questions remain: (i) is it possible for foreign companies to give training to grassroots NGOs, GONGOs and social organizations in China? ; (ii) associations of doctors and associations of patients would, in your view, fit into which category? Social organizations? ; (iii) if they are social organizations, a new law is under implementation, from what I read in your blog, right? So it would be hard to predict exactly if foreign companies can cooperate with them or not?

A5: On question (i), foreign companies are not covered under the Overseas NGO Law which applies to “nonprofit, non-governmental social organizations that have been legally established outside of mainland China.” So yes it should be possible for foreign companies to give trainings to social organizations in China.  Interestingly, the Overseas NGO Law does not seem to allow for cooperation between a foreign NGO and a Chinese company. Article 16 of the law states that foreign NGOs can cooperate with Chinese government agencies, mass organizations (e.g. GONGOs), public institutions (e.g. universities), and social organizations but does not include companies in this list. It’s not clear if this is an oversight, but it’s odd that companies are excluded as potential partners of foreign NGOs given the growing interest in CSR in China’s private sector.

Regarding question (ii), yes associations, such as professional associations of doctors, and associations of patients would fit into one of the three types of social organizations, in this case what the Chinese call “social associations” or 社会团体 (shehui tuanti) which are essentially membership associations. You would need to ascertain that these associations are actually registered with Civil Affairs as “social associations.”  Regarding question (iii), I expect there to be new registration and management regulations for social associations forthcoming,  since draft regulations for the other two types of social organizations were already issued in June for public comment. These new regulations should not effect whether foreign companies can cooperate with them because, unlike the more restrictive Overseas NGO Law, these regulations tend to create a more enabling environment for Chinese social organizations.

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